Not worried about market movement: LIC

Mumbai: With assets under management of Rs 31 lakh crore, Life Insurance Corporation (LIC) continues to expand and plans to hire 17,000 people this year, which will add to the headcount. In an interview with TOI, LIC chairman M R Kumar speaks about the focus areas for the corporation. Excerpts:

What will be the impact of rate cuts on LIC?

Our primary concern is to cover the risk, the second is to return the premium, and third, meet reasonable expectation of the customer in terms of return. Wherever there are guaranteed return policies, we have locked into investments to match the promised returns. We also have 14% investment in equity, which rises to 20% going by market value. Last year, we made Rs 23,000-crore profit from equity and have crossed Rs 11,500-crore profit on equity this year and are looking at repeating last year’s earnings. Also, we have invested more in corporate bonds than in PSUs bonds.

LIC has invested significantly in public sector shares, which have lost value. How has that affected the portfolio?

We are not worried about market movements. We are long-term players — so long as the scrip gives a return over 10-15 years, it is good enough. We do our research before investing. We look at once in a quarter and take a call.

Many private bonds have been downgraded. Do you exit if there is a downgrade?

We have a standard operating procedure of investing only in AA and above in private sector. We cannot exit if there is a downgrade. If they default, we will have to go after them and perhaps look at exiting.

While LIC has maintained its market share, there has been a drop in individual non-single premiums...

Single-premium policies were a flavour at one point and this includes our annuity products. Whenever there is a good rate of return, people go after that. This year, our market share has grown in non-single premium. Only three-four plans in a basket of 30-35 products are single-premium. Also, we are focusing on increasing sales in terms of the number of policies.

Private players have been more aggressive in selling pure protection term policies compared to LIC. Why has LIC lagged?

I know people were complaining that our product is not competitive. But that has changed. We have recently launched Jeevan Amar — a new term plan. To match it, we have launched Tech Term, an online plan, which is a very competitive product. This is available only online and there is no commission, which makes it even cheaper. We are also introducing a new concept called video medical, where the proposer will have to do a video chat and get his medical examination done and third-party administrators will assist with medical reports.

Compared to large private players, LIC’s bancassurance sales are low...

That is changing with IDBI Bank. This year, the bank has selected 720 branches to sell policies to high-end customers. Within a short time, they have emerged the largest bancassurance partner, having crossed Rs 250 crore of premium and they are targeting Rs 2,000 crore in FY20. The share of bancassurance, which was 2.61% of the business, has gone up to 3.64 now.

What are you doing to improve persistency?

Typically, in India insurance is sold and not bought and it takes effort to ensure that the policyholder continues to renew. Now we are focusing on getting a NACH (National Automated Clearing House) mandate for direct debit from a bank account, which is giving good results. Some zones have converted 20% of their premium to NACH. We are focusing on increasing the 60-month persistency, which is currently at 62%. If this goes up, all the renewals will improve. We are also encouraging digital payments. In Corporation Bank, the premium can be paid via ATM and IDBI Bank will soon offer the same.

IDBI Bank has been posting continuous losses and has sought more capital. Do you plan to increase involvement?

We will, but that will be only at the board level. We believe that the worst is over. The provisions for write-offs have all been made and recovery is what we are going after now. They will exit the mutual fund, and the life insurance will become leaner with focus on retail. We will support them to get into retail and they will do better service business for us. I believe they will be getting out of RBI’s prompt corrective action (PCA) by December 31. Once they start lending again, things will start looking up.

Have you ever considered merging IDBI Bank and LICHFC?

Each has its strengths. IDBI Bank has some lending to housing, whereas LIC Housing Finance (LICHFC) is a pure housing play. We have not thought about that right now. Maybe a few years down the line, we can think of doing that one way or the other. For the time being, we will allow them to continue.

There have been rumours about LIC getting listed...

We have not heard anything on this at all. LIC is created by a statute by Parliament and the government guarantee continues. I feel in India, there is still scope for a state-owned company. This is the only country where the state-owned insurer has managed to keep 73% market share so many years after opening up. China Life lost half its market share within five years.

Will you continue to require branches, given that servicing is moving online?

There are two ways to look at it. On the one hand, we have 34,000 outlets which are run by agents themselves in addition to our 2,014 branches and 1,800 satellite offices. On the other, going forward, we plan to give the satellite offices servicing functions. From the branches, we will slowly move some of the servicing functions online. Loan against a policy, repayment of loan and change of address can now be done online.